In 2013, there were approximately 1,400 active rigs drilling for U.S. shale oil, but that number has fallen to around 529 total rigs currently. The big decline in rigs was due to oil prices falling from around $107 per barrel in June of 2015 to $30 in January of 2016. During the decline, shale drillers concentrated on become more efficient, decreasing drilling times, and increasing the total amount of oil produced per well.
On January 10th the International Energy Agency (IEA) reported that, “recent reports tell us that the productivity of shale activity has improved in leaps and bounds. Whether it be shorter drilling times or larger amounts of oil produced per well, there is no doubt that US shale industry has emerged from the $30/bbl oil world we lived in a year ago much leaner and fitter.” Further, the U.S. Energy Information Administration (EIA) increased their forecasts of U.S. oil production by 320,000 barrels per day because of, “improved well completion techniques, longer lateral wells, and the use of more proppants that have increased recovery estimates.”
This data brings us to the Zacks Bull of the Day, Fairmount Santrol Holdings . This Zacks Ranked #1 (Strong Buy) company provides sand and sand-based products used by oil and gas exploration and production companies to enhance the productivity of their wells. Its operating segment consists of Proppant Solutions and Industrial and Recreational Products. Proppant Solutions segment provides sand-based proppants for use in hydraulic fracturing operations. I&R segment provides raw, coated and custom blended sands to the foundry, building products, glass, turf and landscape and filtration industries.
Recent Earnings Data
In November, management posted Q3 2016 results, and they met the Zacks consensus earnings estimate, and beat the Zacks consensus revenue estimate. Specifically, on a quarter over quarter basis, Fairmount saw gains in total volumes +24%, revenues +18%, oil & gas proppant volumes +36%, sales of raw frac sand +35%, and sales of resin coated proppant +61%.
Management’s Take
According to Jenniffer Deckard, President and Chief Executive Officer, “We are encouraged by the early signs of improvement we saw in the proppant market during the third quarter. Third-quarter volumes in our Proppant Solutions segment saw significant increases sequentially and over the prior-year period, as demand strengthened for both our raw frac sand and coated proppants. In addition, we instituted appropriate price increases on certain Northern White sand products late in the third quarter. As market conditions improve, we will continue to evaluate our operational footprint to ensure we are optimally positioned to quickly address upticks in demand and efficiently deliver product to both our Proppant Solutions and Industrial & Recreational customers. The third-quarter reopening of our Menomonie facility and the completed expansion of our Wedron facility earlier this year are expected to enable us to meet current demand for Northern White sand, which continues to grow.”
Price and EPS Surprise Graph
As you can see in the graph below, the company has met or beat the Zacks estimates for the past four consecutive quarters resulting in significant price appreciation.
Fairmount Santrol Holdings Inc. Price and EPS Surprise
Fairmount Santrol Holdings Inc. Price and EPS Surprise | Fairmount Santrol Holdings Inc. Quote
Increasing Estimates
Due to increasing volumes, estimates for Q4 16, Q1 17, and FY 17 have all been increased over the past 7 days; Q4 16 rose from -$0.10 to -$0.09, Q1 17 improved from -$0.08 to -$0.07, and FY 17 increased from -$0.16 to -$0.10.
Looking Forward
Going into Q4 16 management has stated that interest in resin coated proppant products increased towards the end of Q3 and into Q4. Further, management implemented a $2-$4 per ton price increase across all its customers during the end of Q3. These price increases are expected to start showing up in Q4 results. Lastly, Fairmount reopened their Menomonie Wisconsin facility late in Q3; this plant has an annual sand capacity of 750,000 tons. Fairmount Santrol Holdings reports Q4 16 earnings results on March 9th.
Now, which stocks should you sell?
As a Zacks Rank #1 Strong Buy, this Bull of the Day deserves consideration. But today there are 220 Zacks Rank #5 Strong Sells that demand even more urgent attention. If any of these are lurking in your portfolio, they should be removed immediately. Since 1988, such stocks have actually performed more than 11X worse than the S&P 500. See all Zacks Strong Sells and Strong Buys absolutely free >>.
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Bull of the Day: Fairmount Santrol Holdings (FMSA)
In 2013, there were approximately 1,400 active rigs drilling for U.S. shale oil, but that number has fallen to around 529 total rigs currently. The big decline in rigs was due to oil prices falling from around $107 per barrel in June of 2015 to $30 in January of 2016. During the decline, shale drillers concentrated on become more efficient, decreasing drilling times, and increasing the total amount of oil produced per well.
On January 10th the International Energy Agency (IEA) reported that, “recent reports tell us that the productivity of shale activity has improved in leaps and bounds. Whether it be shorter drilling times or larger amounts of oil produced per well, there is no doubt that US shale industry has emerged from the $30/bbl oil world we lived in a year ago much leaner and fitter.” Further, the U.S. Energy Information Administration (EIA) increased their forecasts of U.S. oil production by 320,000 barrels per day because of, “improved well completion techniques, longer lateral wells, and the use of more proppants that have increased recovery estimates.”
This data brings us to the Zacks Bull of the Day, Fairmount Santrol Holdings . This Zacks Ranked #1 (Strong Buy) company provides sand and sand-based products used by oil and gas exploration and production companies to enhance the productivity of their wells. Its operating segment consists of Proppant Solutions and Industrial and Recreational Products. Proppant Solutions segment provides sand-based proppants for use in hydraulic fracturing operations. I&R segment provides raw, coated and custom blended sands to the foundry, building products, glass, turf and landscape and filtration industries.
Recent Earnings Data
In November, management posted Q3 2016 results, and they met the Zacks consensus earnings estimate, and beat the Zacks consensus revenue estimate. Specifically, on a quarter over quarter basis, Fairmount saw gains in total volumes +24%, revenues +18%, oil & gas proppant volumes +36%, sales of raw frac sand +35%, and sales of resin coated proppant +61%.
Management’s Take
According to Jenniffer Deckard, President and Chief Executive Officer, “We are encouraged by the early signs of improvement we saw in the proppant market during the third quarter. Third-quarter volumes in our Proppant Solutions segment saw significant increases sequentially and over the prior-year period, as demand strengthened for both our raw frac sand and coated proppants. In addition, we instituted appropriate price increases on certain Northern White sand products late in the third quarter. As market conditions improve, we will continue to evaluate our operational footprint to ensure we are optimally positioned to quickly address upticks in demand and efficiently deliver product to both our Proppant Solutions and Industrial & Recreational customers. The third-quarter reopening of our Menomonie facility and the completed expansion of our Wedron facility earlier this year are expected to enable us to meet current demand for Northern White sand, which continues to grow.”
Price and EPS Surprise Graph
As you can see in the graph below, the company has met or beat the Zacks estimates for the past four consecutive quarters resulting in significant price appreciation.
Fairmount Santrol Holdings Inc. Price and EPS Surprise
Fairmount Santrol Holdings Inc. Price and EPS Surprise | Fairmount Santrol Holdings Inc. Quote
Increasing Estimates
Due to increasing volumes, estimates for Q4 16, Q1 17, and FY 17 have all been increased over the past 7 days; Q4 16 rose from -$0.10 to -$0.09, Q1 17 improved from -$0.08 to -$0.07, and FY 17 increased from -$0.16 to -$0.10.
Looking Forward
Going into Q4 16 management has stated that interest in resin coated proppant products increased towards the end of Q3 and into Q4. Further, management implemented a $2-$4 per ton price increase across all its customers during the end of Q3. These price increases are expected to start showing up in Q4 results. Lastly, Fairmount reopened their Menomonie Wisconsin facility late in Q3; this plant has an annual sand capacity of 750,000 tons. Fairmount Santrol Holdings reports Q4 16 earnings results on March 9th.
Now, which stocks should you sell?
As a Zacks Rank #1 Strong Buy, this Bull of the Day deserves consideration. But today there are 220 Zacks Rank #5 Strong Sells that demand even more urgent attention. If any of these are lurking in your portfolio, they should be removed immediately. Since 1988, such stocks have actually performed more than 11X worse than the S&P 500. See all Zacks Strong Sells and Strong Buys absolutely free >>.